Australia is considering capping fees for litigation funders and lawyers, and guaranteeing a minimum rate of return for plaintiffs, in its latest clamp down on the industry following a surge in costly class action lawsuits.

Australia’s government last year moved to tighten regulatory scrutiny of wealthy offshore and local litigation funders following a surge in successful class actions against companies in recent years.

Litigation funders invest in consumer, investor and other lawsuits by groups that cannot afford them, by funding them in exchange for a share of any settlement or judgment. If the group of plaintiffs lose, it does not have to repay the financial investor.

Companies such as Omni Bridgeway Ltd, formerly IMF Bentham, and Maurice Blackburn, have funded more than 300 class action suits in Australia, including against the country’s major banks.

A parliamentary report in December said Australia’s light touch regulatory regime had created a global hot-spot for investors based in tax havens and with “dubious corporate histories” generating huge returns.

It suggested 70% of the gross proceeds could be a minimum return for class action members.

“This measure is of particular importance to ensure successful applicants are adequately compensated in their cases as well as preventing litigation funders and law firms from taking disproportionate fees in the process,” Treasurer Josh Frydenberg said in a joint statement with the nation’s Attorney-General.

Litigation funders, however, say such a limit would be prohibitive for smaller cases given the high risk and costly nature of such lawsuits. In some cases, a 30% cap on gross returns would not even cover litigation costs, a PwC paper prepared for Omni Brideway in March showed.

“The government’s proposed cap on returns to litigation funders is a dangerous attack on the legal rights of Australians and will lead to corporate wrongdoing going unchecked,” said Andrew Watson, national head of class actions at Maurice Blackburn, a law firm.

“Litigation funders play a vitally important role in allowing access to justice for ordinary Australians who otherwise could not afford to launch legal cases to right wrongs.”

Lawyers and litigation funders have received an average 41% of gross settlements in the last 20 years, according to the Law Council of Australia.

Earlier this year, the government proposed legislation to permanently lower the bar on listed companies’ so-called “continuous disclosure” obligations, protecting companies and their officers against liabilities for misleading and deceptive conduct unless “fault” is proven.

The government will consult on the proposed minimum rate of return guarantees before making a final decision this year, it said.